Disaster Zone Credits

Disaster Zone Credits Extended for 2020

Employers affected by qualified disasters that occurred during 2020 may be eligible for relief up to $2,400 in the form of a general business credit. These credits offer similar relief as provided to taxpayers impacted by designated disasters such as Hurricanes Harvey, Irma, and Maria by the Disaster Tax Relief and Airport and Airway Extension Act of 2017 and the relief for disasters that occurred in 2018 and 2019 as made available under the Further Consolidated Appropriations Act, 2020. The Consolidated Appropriations Act, 2021 extended the credit for qualified disasters that occurred in 2020. The disaster zone credits discussed in this article are not payroll tax credits and are different from the Employee Retention Credit initially made available under the CARES Act and modified and extended under the ARPA.

Eligibility

The disaster zone credit is available to employers with eligible employees assigned to work locations within designated disaster zones. An eligible employee is any employee whose principal place of employment on the date of the disaster was located in the designated disaster zone. For the 2020 credit, qualified disaster zones are determined by the president for the periods from January 1, 2020 to February 24, 2021. The amount of the credit is based on qualified wages paid by an eligible employer to an eligible employee.

Qualified Wages

“Qualified wages” include wages paid or incurred during the time the employer’s trade or business located in a qualified disaster zone was inoperable due to a disaster (up to 150 days after the disaster incident) and includes wages paid without regard to whether the employee performs any services, performs services at a different location from his or her principal place of employment, or performs services at the principal place of employment before significant operations have resumed. Employers can claim qualified wages regardless of whether the employer was reimbursed by insurance.

Importantly, direct damage to the principal place of employment is not a prerequisite for credit qualification. Rather, to qualify for the credit the employer must demonstrate that the location had been affected by the disaster in some way. Some examples of inoperability may include:

  • Inaccessibility to the location by employees
  • Increased employee absences
  • Reduced production or employee attendance
  • Reduced sales or customer visits
  • Utility outages
  • Supply chain delays in qualified disaster zone areas

Credit Amount

The credit amount is equal to 40% of the qualified wages paid to each eligible employee, up to $6,000 (making the maximum credit available $2,400 per eligible employee). Wages paid to employees that were used in determining a coronavirus-related employee retention credit on an employment tax return cannot be included in the disaster zone credit calculation. Additionally, any wages taken into account for the disaster zone credit shall not be taken into account as wages for purposes of the Credit for Increasing Research Activities (the R&D tax credit), Indian Employment Credit, Employer Wage Credit for Active-Duty Members of Uniformed Services, Employer Credit for Family and Medical Leave, Work Opportunity Tax Credit (WOTC) and the Empowerment Zone Employment Credit.

MFA Observations

  • Alabama, California, Florida, Louisiana and Oregon were hit especially hard during 2020. Businesses that were disrupted by a natural disaster, particularly in these states, are encouraged to investigate filing for this credit.
  • The credit provides financial assistance to employers who continue to pay wages to employees even though sales and productivity is disrupted.
  • The credit limit of up to $2,400 is per employee per disaster, and therefore is not eligible for each year when wages paid during two different tax years are affected by the same disaster.
  • ​The credit eligibility requirements and calculations can be difficult to navigate. Our team of tax advisors can help businesses obtain the maximum credit for which they are eligible.

Contact Us

Related posts
2021 year end tax businesses

2021 Year-End Tax Planning for Businesses

The information contained in this article is based on tax proposals as of November 4,…

Read More

2021 Year-End: Common Fringe Benefits, Special Rules for 2% S Corp Shareholders

As 2021 draws to a close, employers should review whether they have properly included the…

Read More